The Solicitors Regulation Authority is urging solicitors to make sure that the credentials of people approaching their firm to offer business expansion are genuine.
Two recent reports have been received by the SRA of firms branching out into different work areas, but the reality was that new colleagues had infiltrated the firm to defraud clients. The incidents have led to potential losses of more than £7 million for those involved.
The problem arises when fraudsters approach the firm offering to expand the services they offer and giving bogus credentials to support their supposed expertise. Once appointed and away from supervision, they then have access to client money which is then stolen.
The SRA state that small firms are targeted because the fraudsters think their apparent offers of assistance or new work will be more readily accepted and that principals in those firms may not have been able to keep up to speed with warnings issued.
All solicitors have a duty to run their businesses in accordance with “sound financial and risk management processes” to protect their clients’ money and assets and have an obligation to provide a proper standard of service to their clients. Taking on new staff for areas where managers do not have the relevant expertise could mean they might not be properly supervising employees.
Paul Philip, SRA Chief Executive, said:
“Many law firms handle large amounts of money, making them an attractive target for fraudsters.
“We know that most firms have strong systems in place to make sure they are employing the right people, as well as protections to make sure staff are properly supervised and money in the client account stays safe.
“But these recent cases show that there is no room for complacency and that undertaking careful due diligence for any potential employees is essential. Leaving the door open for fraud is damaging to both the firm and public trust in solicitors.”
Approaches of this type, particularly if it unsolicited, need to be treated with extreme caution. Carrying out due diligence would include:
- Getting as much verification as possible from third parties such as banks and other professional firms. One check or reference from another firm is unlikely to be sufficient because the fraudsters may control or have influence over more than one firm
- Internet searches
- Checks on official websites such as this one and those of other regulators
Solicitors should be aware of unusual aspects of the proposal. This could be someone bringing work to the firm or even saying that they will pay the sole principal or partners a ‘salary’.
Advice on carrying out due diligence for potential employees has been outlined in a number of case studies issued by the SRA.
The duties on solicitors – including running businesses along sound risk management processes, protecting the money and assets of clients and providing a proper standard of service – are outlined in the SRA Principles.